by Doug Hausken on April 26, 2013

Two reports recently came out that we thought many of you would be interesting in examining.  Put simply, the takeaways are: there are hopeful signs of recovery across the nonprofit sector; ongoing strategic planning remains critically important; and fundraising is an ongoing challenge.

The first is BoardSource’s Nonprofit Governance Index 2012. On the Patmos blog, we discussed last year’s report and compared it to some of our own findings from a survey that we had recently conducted. You can find those blog posts HERE. This year’s report is of the same high quality that we have come to expect from BoardSource. It provides a really good sense of how nonprofits are doing in the United States because the over 1,300 participants are well distributed in geographic location, mission, and size.

The second report is the“2012 National Board Governance Survey for Not-for-Profit Organizations” from the not-for-profit side of the consulting company Grant Thornton.  This insightful report drawn from surveys submitted by 706 board members and senior management from across the nonprofit sector covers many of the same topic areas from BoardSource.  This report is worthy of your attention for its identifying the growing emphasis and attention being given to  the fiscal governance side of what nonprofit boards do in a category that they call “reputational risk management”.

Amid the insightful findings is there good news? Yes! Both reports suggest that the economic environment for nonprofits seems to be getting better, albeit at a slow rate. And this breathing room is allowing nonprofits to focus on their strategy for the next year or more and on other matters related to governance, like accountability.

In BoardSource’s Nonprofit Governance Index 2012:

We found a sizeable reduction in the percentage of nonprofits that made negative financial adjustments (downsizing, cutting staff, reducing salaries and benefits, etc.) in the past two years, as compared to Governance Index data collected in 2010. Responses also demonstrate a modest increase in the percentage of organizations expanding or launching new initiatives. (Page 3)

And in the 2012 National Board Governance Survey for Not-for-Profit Organizations by Grant Thornton, LLP:

Not-for-profit organizations are emerging from the recent economic downturn stronger than ever. Over the past four years, significant numbers of not-for-profit organizations have implemented new strategic plans, restructured their organizations and made their programs more efficient as they weathered the difficult economy. According to the results from this survey, approximately half of respondents are confident with their programs and brand. Fewer still are convinced they have achieved the right expense structure or that revenue is being maximized. [And] confidence in staffing, structure and communication is even lower… (Page 2)

This is very welcome news for nonprofits that have not seen their economic situation improve as much as they feel comfortable, hopefully some of the funding will find its way to them as well, provided they continue to sharpen their business practices. However, it seemed from the reports, and our experience lately, that medium to large-sized nonprofits (greater than $1 million) seem to be doing better financially but small nonprofits are the ones still feeling the brunt of what remains of the economic downturn.

Another reason for optimism is that the stock market is doing really well. (How that is happening without the rest of the economy doing better is another issue and one that I have not seen addressed very adequately by any of the experts.) This is good news because most of the money that foundations give away is made (or loss) in the stock market. So hopefully within 18 months, foundation giving should start to pick up again. But the impact of the Sequester for those organizations reliant on government funding and the Affordable Care Act remains to be seen, which adds more uncertainty to an already fluid funding environment.

All of this points to the fact that nonprofits need to continue their focus upon ongoing STRATEGIC PLANNING. Now is the time to be thinking about how to improve your nonprofit through governance and performance management because of the ongoing uncertainty of future funding. Many probably have a little more breathing room than a year ago. If there is not time to do a full blown strategic plan, then create a business plan with a shorter time horizon but will also help improve operations. One important aspect to include is a way to improve the amount of cash that is in reserves for the organization. Most nonprofits still have less than six months of operating cash in the bank and six months should be the minimum amount that should be set aside.

There are many reasons for nonprofits to be optimistic about their financial futures. But to ensure that future they need to double down on their planning for it so that they can execute on their mission.


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